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The famous and closely watched US endowment model took a hit in FY23, with smaller, equity-heavy investors taking the lead. But the longer-term superiority of a chunkier exposure to alternatives remains unchallenged.
Managers build fixed income capabilities despite poorer outlook
(Pictured: Maria Wilton)
Expectations of rising interest rates are not traditionally seen as conducive to strong bond performance, but that hasn’t stopped at least two local fund managers announcing they will enter this space over the past month.
And investors shouldn’t believe all market hype when it comes to fixed income and interest rates anyway, according to Dave Plecha, global head of fixed income at asset manager Dimensional.
In Australia talking to clients recently, Plecha stressed that the expectation for interest rates to rise was already factored into prices.
“What happens from here we don’t know, which is why it still makes sense to have an allocation to bonds,” he said in a statement.
Franklin Templeton have recently begun building an Australian fixed income capability with the two hires of Chris Siniakov as managing director, fixed income and Andrew Canobi as director, fixed income, earlier this month. Both have long careers in the fixed income space.
Maria Wilton, managing director of Franklin Templeton Investments, says that regardless of the market outlook, investors will always need fixed income to diversify from equity risk.
“We’re not building a fixed income capability based on a short term outlook in the market,” she said.
Siniakov and Canobi will hire a team of fixed income professionals as the company looks to launch product by the fourth quarter of this year.
“The other thing to point out is that the approach that Chris and Andrew have taken in the past is their expertise in absolute returns … benchmark unaware solutions and that’s an area were finding our clients are interested in,” Wilton said.
On a similar theme, according to Dimensional’s Plecha, saying interest rates can only go up from here, doesn’t necessarily tell investors anything about how their fixed income portfolios will perform in the future.
He points to historical data which shows that in at least two periods of rising interest rates in the US – from 2003 to 2007 and from 1992 to 1995 – long-term bonds actually outperformed shorter-to-intermediate term bonds.
“This may seem counter-intuitive, but it makes sense if you remember that bondholders can be comforted by pre-emptive action against inflation,” he said.
Equity Trustees is also establishing a fixed income capability with the appointment of Lance Pupelis to head of cash and fixed income. Pupelis will report to chief investment officer George Boubouras.
